Arts funding in need of a big step up

Australia needs to stop tip-toeing around the central role of creativity in the economy.
Photo: Michele Mossop

by
Cathy Hunt

A paradigm shift in how we support and develop the cultural sector is needed. And if the potential economic output of this sector is to be realised, this change must be made urgently.

It requires nothing less than a new approach to funding (grants and donations), financing (loans) and investment (equity). It needs to lead to financial inclusion for artists and cultural enterprises. If we are to achieve the innovation and excellence called for from the sector, we need to design innovation and excellence into the systems, business models and resourcing that support the sector.

All those in the cultural economy experience some form of financial exclusion. As an artist, you are likely to have been supported by family or friends throughout your career and, if fortunate, to have had one small grant at some point.

You’re luckier still if you’ve got through an interview at your local bank, let alone secured a loan appropriate and affordable to your circumstances.

If you operate as a non-profit entity, because that is appropriate to your purpose, you will probably be unable to access a loan from a bank, let alone service one, given your limited assets and the short-term nature of any government grants you may have.

If you are a creative business, you are likely to be too small, or have not been trading long enough, for government business support programs, and as a commercial enterprise, you will be ineligible for arts funding programs.

If you’re a start-up, you’ll also be too risky for angel investors, because of the perception that you’re more concerned about your creative practice than creating a commercial venture and building profit. You may not be able to demonstrate the level of return on investment even as an established creative business when compared with other sectors, such that, as an investment opportunity, you will rank below technology, health, and biotech outfits.

If you’re a games, entertainment, screen or design-based company, you’ll probably have to go overseas for venture capital. The boutique firms that understand the risk-reward profile of creative businesses that exist in the United States don’t exist in Australia.

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If this picture is bleak, the government funding system as it stands today doesn’t make it much brighter. The need to maintain existing infrastructure and institutions, ever rising costs set against grants that are declining in real terms, and the focus on outcomes tied to the life of grants, all tend to preserve the status quo.

Although there are calls from the sector for government to adopt a greater “investment mindset", the system we have for building capacity and financing is not geared to respond.

Yet Australia is in a unique position to make the changes needed. While Britain and the US grapple with these issues in a time of crisis, Australia is in a better economic position, giving it the ability to invest in the future and build resilience into the cultural economy to prepare for the structural changes ahead.

The answer is not just to increase government grants, nor simply to diversify the funding base of our organisations by greater adoption of the US tradition of philanthropy.

Rather, it is to create a model that blends different forms of funding, financing and capital to build the tangible and intangible assets of the sector, and hence its resilience.

We need to take lessons from the emerging capital market for the social sector (housing, welfare and so on), and to recognise that the cultural sector is, to use an American term, “mis-capitalised" to undertake the work we expect of it.

There are two contexts in which the change needs to occur. The first concerns the sector itself; creative companies need to take a hard look at their own operations, to see if they are “fit for purpose" in the changing and challenging environment we all face.

This assessment should encompass everything from their artistic programs, operations and financial structure. They also need to articulate clearly the value they are creating along the way, as both storytellers and statisticians.

The second involves government. A new accord is needed between government and the country’s cultural organisations, from large to small. The focus should be on creating long-term contracts with each individual company, regardless of size, rather than the annual and triennial standardised funding agreements they are on today.

Government funds should extend beyond supporting the artistic output to specific money that allows them to build reserves, skills and assets. At the moment, this kind of funding is mostly confined to the major performing arts companies, and even then, their asset bases are limited. This would result in both stability and income-generating opportunities that in turn will attract new funders, financers and investors.

It will also stop the unnecessary waste of time and energy of endless grant rounds, a key distraction from engaging with other partners and paying customers.

There is an urgent need for a new culture fund, to sit alongside the reformed Australia Council. Models could include the investment funds emerging in the social sector, and financing that builds on the innovation seen in the film and technology sectors.

Ideally, this would be set up as an endowment. It would be accessible and affordable for individuals as well as non-profit and commercial enterprises, and would disperse funds through a blend of grants, loans and investments.

There is also a need to develop new partnerships, both with foundations and high-net-worth individuals seeking new avenues to invest, and with financial intermediaries who have the capacity to model funds for investors seeking a social and cultural return on their capital. The federal and state governments should collaborate more closely on funding decisions, to better reflect the interrelationship and needs between arts companies in each state.

The legislative and taxation environment also needs to be changed to stimulate investment from other sources, building on the success of tax offsets for film and responding to the key recurring recommendations from recent government reviews.

The cultural economy, with its mix of entrepreneurs, commercial and non-profit organisations, generates ideas, products and services from creative expression. It is at the heart of the digital economy, and is a key resource to grow, diversify and strengthen Australia for the future.

The Mitchell Review into private sector support for the arts, and the James/Trainor review of the Australia Council – both released this year and at present with the federal government – have touched upon but failed to grasp the breadth and depth of change required to build resilience into the sector.

Culture and creativity cannot be one of the drivers for Australian society and economic wellbeing from a position of marginalisation.

If the cultural sector is to be “mainstreamed", as federal Arts Minister
Simon Crean
appears to envisage, those working in it need to be able to access mainstream finance. It needs a sectoral reform package, not just a few dollars to fix the holes here and there.

We don’t need more research. There are plenty of reports already written and examples abound from elsewhere, including the work of the Non-Profit Finance Fund in the US and of social investment funds in Britain. What we need is some action, starting with Crean’s long-awaited National Cultural Policy.